The Maharashtra government, which is striving to keep pace with competition from other states to attract investments, has once again ruled out the possibility of withdrawal of rules amended last year for value added tax (VAT) set offs.
Under the new regulations, car manufacturers are only eligible for VAT set offs for vehicles sold in the state. The move has met stiff opposition from vehicle makers, who are now considering to shift their facilities.
A senior state government official, requesting anonymity in view of the ongoing budget session of the legislature, told Business Standard, "There is no question of going back on the amendments, which came into effect last year."
The 52(A) amendment to the Maharashtra VAT Act has prevented companies from claiming higher Input Tax Credit (ITC). Earlier, the companies would formally sell their entire production from the manufacturing arm to the marketing and sales arm, to claim a VAT set off for sales within Maharashtra. The marketing arm would then, in effect, bill this to other states across the country.
Under a revised rule, the companies would not be able to claim the VAT set off on products sold outside the state.
The official said, last year the government had asked Ernst & Young to look into individual cases and prepare a report. The final report is awaited.
According to the official, the government may consider some incentives to attract investments in the automobile sector and promote expansion of the existing units. However, he reiterated the revised rules would not be cancelled.
The government's stand has evoked angry reactions from the automobile sector. Pawan Goenka, president (automotive and farm equipment sectors) Mahindra & Mahindra said, "According to our expansion plan, we built a unit in Chakan, which would manufacture 250,000 vehicles and 70,000 trucks per annum. We are right now looking at Phase II expansion and awaiting the state government's decision on incentive." Mahindra has earmarked Rs 3,000-4,000 crore as investment for Phase II of Chakan.
John Chacko, Volkswagen Group Chief Representative India and President and Managing Director, Volkswagen India Private Ltd said, "The matter has been pending for long. Several states have approached us and we are evaluating our options. However, we will not hurry into a decision. Volkswagen has more investment plans but it will depend on the decision taken by the Maharashtra government."
Volkswagen has already pumped in Rs 4,000 crore in Maharashtra for Volkswagen, Skoda and Audi brands. The German company has set up a 110,000 units per annum (initial capacity) plant in Chakan where it produces the Polo, Vento, Skoda Fabia and Rapid.
SkodaAuto, the Czech car brand had initially established a separate plant in Aurangabad, which is also used by luxury brand Audi. With future product introduction in mind, the company wants to expand the capacity at Chakan.
Similarly, Bajaj Auto, India's second biggest two-wheeler maker, is seeking full sales tax refund of Rs 1,100 crore. According to reports, the company received Rs 800 crore towards this settlement in the later half of 2011.
The company exports 30 per cent of its products with only 10-12 per cent of output sold within the state boundaries. According to media reports quoting a Bajaj official, this creates a gap of Rs 220 crore every quarter.